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Taxes on paypal and others
Thread poster: dmoamin
dmoamin  Identity Verified
United States
Local time: 22:50
Arabic to English
+ ...
Jan 26, 2007

Hello
i have a question with regards to taxes. so if clients paid me via paypal and i withdraw the money into my checking account and used them from there. how do i report the taxes? do i report only the bank taxes? sometimes the amounts are not that large ( of course depending on the project) and some other times they are a bit large. so how do you go by reporting those types of taxes?
thanks


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Ritu Bhanot  Identity Verified
France
Local time: 07:50
Member (2006)
French to Hindi
+ ...
Taxes Jan 26, 2007

Hi,

I don't know about others, but I always declare taxes on the invoiced amount which is often a bit higher and then deduct the charges: bank charges, paypal charges etc. as incidental expenses.

Invoice means the one that I send to the client as a bill.

I do it for simplicity and transparency. BTW I declare all details in Local Currency (INR) as that's the one I receive at the end of the day...

May be others do it in a different way.

HTH

Regards,

Ritu

[Edited at 2007-01-26 04:41]


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dmoamin  Identity Verified
United States
Local time: 22:50
Arabic to English
+ ...
TOPIC STARTER
which invoice? Jan 26, 2007

Hello
thanks for replying back, i am not so sure if i got this straight, so you declare taxes on your invoice ( the one you bill the customer with?)
sorry i am lost?


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Can Altinbay  Identity Verified
Local time: 01:50
Japanese to English
+ ...
Do you mean charges? Jan 26, 2007

It sounds like you mean bank charges and PayPal charges. Taxes are taken by a government. I report the whole amount charged to the customer, from which PayPal deducts its charges. You may be saying that the bank also takes charges. Both of those are business expenses. It's best if you consult a professional, but that's my understanding (and yes, I do use a professional).

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dmoamin  Identity Verified
United States
Local time: 22:50
Arabic to English
+ ...
TOPIC STARTER
nop not that Jan 26, 2007

Thanks for replying, no i am not taking about bank charges I am talking about taxes and I do use a professional but that does not mean that I should stay in the dark and not know what is going on.
I guess what I am trying to figure here is ( how do you report your taxes) on the money in Paypal?
Do you do that just like your bank?
Your bank sends you at the end of the year a statement to tell you how much taxes you owe, so is that the same with paypal? Is it considered just like any other bank account?
I started recently to use paypal and I am not so familiar with it still. This is why I am asking.
Thanks for helping


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Ritu Bhanot  Identity Verified
France
Local time: 07:50
Member (2006)
French to Hindi
+ ...
CA does it all Jan 26, 2007

Hi,

Well, in India we have CAs and well, at the end of financial year (1st April to 31st March in India) I just give all my papers to the CA (Chartered Accountant) who does it all.

Still, I know a bit about my accounts (I have studied Accountancy at degree level i.e. I have a Bachelors degree in Commerce)... so I know the basics and have kept account books for some organizations. This helps me keep my accounts in order.

I think as all of us are professionals in our own right, we need to know at least the basics of accounting and taxation so that we can check, to a limited extent, if everything is in order.

Regards,

Ritu

Note: Well, in India if your basic acocunts are all well maintained the year end accounting costs are reduced considerably. The CAs charge a very nominal fees for filing returns of well maintained accounts. It's so simple takes about half an hour (max.) a week...

[Edited at 2007-01-26 04:49]


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Ritu Bhanot  Identity Verified
France
Local time: 07:50
Member (2006)
French to Hindi
+ ...
Income Tax Jan 26, 2007

Well, legislations might differ in countries... but in India Income tax is paid on what you earn. So whether you keep your money in bank, at home or with Paypal or anywhere else, you "have" to give the details to government. I also declare the amount I earn from Private tutions, which is often paid in cash. Otherwise, it's black-money and entails punishments.

Like in all business you make your balance-sheets, showing your assets and liabilities, earnings and expenses... and tax-saving investments. And at the end of a financial year, show it all to the CA who calculates the taxes due (if you haven't paid any advance tax) and you pay it with the returns.

Just a small description of what I do... explaining in detail will take a long time.

BTW there are positive points of paying Income-tax and if you pay higher, your credit-worthiness goes up. After all you have earned that money and declared it correctly (and at times "people" believe that "maybe" you didn't declare part of it ), even if that is not the case... and there are some benefits of this. So there's a positive side of paying taxes correctly.

I hope this has been of some help.

Regards,

Ritu


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sokolniki  Identity Verified
United States
Local time: 00:50
English to Russian
+ ...
Form 1099 Jan 26, 2007

Payments sent to the US from abroad using Paypal - you include these amounts into your taxable income yourself.

However I have this only one US client which prefers to use Paypal instead of mailing me checks (for whatever reason they have and I do not know) - they recently sent me Form 1099 with my income they reported to the tax authorities.

[Edited at 2007-01-26 14:38]


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Jessica Klingberg  Identity Verified
United States
Local time: 01:50
Member (2002)
German to English
+ ...
Yes Jan 26, 2007

sokolniki wrote:

Payments sent to the US from abroad using Paypal - you include these amounts into your taxable income yourself.


This is exactly it. I usually make a printout of all my incoming Paypal payments from Jan. 1st to Dec. 31st, together with all applicable charges (you can create such a printout directly from your Paypal account), and use this printout as a form of backup. Incoming payments are added to all other taxable income shown on my W2 forms. Paypal charges are added to my business expenses.

This system has worked well for me until now, and the IRS has not complained.


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dmoamin  Identity Verified
United States
Local time: 22:50
Arabic to English
+ ...
TOPIC STARTER
thanks a lot Jan 26, 2007

thanks a lot i guess my question is not so clear. i have not been asking wheather you report the money on paypal or not to taxes. i was asking whether paypal functions just like any other bank. at the end of each year the bank sends you a statment that includes a tax declartion info. my question was if paypal sends such papers ( acts just like any bank) or not.
i believe that we all know ( be it in india ) or in the US, or any where in the world that we all must report any income and money we make yearly on our taxes. again that is not the question here.


when you provide a service to any translation company they send you a tax form at the end of the year. your bank as well they send you tax forms.
the question is does paypal functions the same way? do they calculate and send you forms or not?

thanks for all your help i guess the best way is to go on to paypal website and check there.
thanks


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ViktoriaG  Identity Verified
Canada
Local time: 01:50
English to French
+ ...
Very simple Jan 27, 2007

No matter what method or route is used for you to get paid, no matter what currency you get paid in, at the end of the day, as Ritu said, you get an amount in your local currency. It is best to declare taxes on that amount. If you were to use the amount of the transaction in PayPal, you would be lost, because at the end of the year, you would have to convert the amount in your local currency, which would not work, because exchange rates fluctuate, and because no two sources of currency exchange have the same rate on any given date.

What's important is not the foreign currency, the method of payment, etc. - all that matters is how much money you got in your own currency.

And yes, as it was mentioned, PayPal and bank fees are simply business expenses.

All the best!


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Katalin Horváth McClure  Identity Verified
United States
Local time: 01:50
Member (2002)
English to Hungarian
+ ...
The bank sends you a 1099 for INTEREST on your money Jan 29, 2007

dmoamin wrote:
when you provide a service to any translation company they send you a tax form at the end of the year.

You are talking about the 1099 forms companies use to report wages they paid for outsiders' services, right? (If you are employed, you get a W2.)


your bank as well they send you tax forms.

The bank sends out a 1099 form at the end of the year, reporting all INTEREST that you earned on the money you kept on your account at the bank. This is what you are talking about, right?
If you earned interest above a certain limit (it is $10, I think), you will have to pay income tax on that interest income. The bank normally does not deduct the taxes (unless you asked them to do so by filling out a special form), they report the interest income on a 1099 to the IRS and to you, so you can calculate and pay your taxes yourself.
They don't know how much of the money you had on your account was from work, etc. so they cannot report anything about your translation income.


the question is does paypal functions the same way? do they calculate and send you forms or not?

Paypal is not a bank. Normally you don't earn interest on money you keep on your PayPal account.
The only way to make money on your money is to invest it into PayPal's money market fund.
Here is there explanation:

Financial Products

How can I earn a return on my PayPal balance?

Users can now earn a return on the money in their PayPal accounts through investing in our Money Market Reserve Fund. Participation in the Money Market is only available to U.S. members.

If you click on Money Market in the Help under Financial Products, you will see that they will issue a 1099-DIV either in paper or electronic format to those people who invest.
If this is what you are talking about, then yes, they will send you a 1099-DIV.

[Módosítva: 2007-01-29 06:50]


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Jessica Klingberg  Identity Verified
United States
Local time: 01:50
Member (2002)
German to English
+ ...
Katalin is right... Jan 30, 2007

...and if I understood your question correctly, then no, PayPal will not send you any type of paperwork, statements, nor tax forms in the mail. They will not send anything. You will need to print out statements yourself if you want to have any printed records.

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dmoamin  Identity Verified
United States
Local time: 22:50
Arabic to English
+ ...
TOPIC STARTER
yes finally Jan 30, 2007

yes thank you that is all i needed to know thanks to both of you. i actually went to Paypal and loged and printed my statement. but yes this was basically my question. i wanted to see if they meaning ( paypal) sends you anything with regards to your taxes or not. so thanks a lot to both of you finally no lecture about reporting taxes. LOL

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